Some of you may know that I now write a monthly column for the new HousingWire publication. It's a lot of fun because the publisher, Paul Jackson, pretty much gives me enough rope to hang myself, letting me say pretty much whatever I want. After watching the US financial services industry for lo these many years, I have found it easy to ramble a bit.
I have also learned that some of what I write when I'm not limited to the exact words my sources use tends to be less than politically correct. Take my recent column on default mitigation technology, for instance.
Mortgage servicers have awesome default management technology today. Automation can dive into a portfolio of loans, find out exactly who has missed their grace period without making a payment and bring them to the front of the call center queue. Trained collectors are fed by auto-dialers that ring up thousands of borrowers an hour in an attempt to catch one of them answering the phone without checking the caller ID.
These telephone service representatives, or TSRs as they are referred to in some industries, run through their scripts in an attempt to gently move delinquent borrowers back on track. When it fails, cases are quickly escalated and more pressure is brought to bear.
When the borrower exceeds 90 days of delinquency and shows no willingness to make a payment, they are shunted on the foreclosure track and that's where everything comes to a halt.
It turns out that legislators around the country think that foreclosure is a bad idea. Not good for re-election, it turns out. So, it's against the law. Fannie Mae and Freddie Mac, now controlled by the federal government we're told, have also taken a step back from foreclosure. It's just not politically correct in this environment. Not gonna do it.
Which leaves the industry in an interesting position. What can servicers do but sit back and rack up late fees and penalties like credit card companies in the hope that one day, if they ever get to court, they can get these people out of their houses before they are destroyed and resell them for some fraction of what they've spent to service them.
This isn't a problem everywhere, of course. Some jurisdictions are now coming around. A Wall Street Journal article last week talked about the courts in Florida where thousands of cases are moving through the courts rapidly and the average hearing lasts about 45 seconds. Of course, the paper was appalled. While some of these people had been living rent-free for up to a year, the courts were only giving them 60 days to move out.
It makes one question whether government and the housing industry can ever work together effectively. In 2001, there was a government mandate to get every living American into their own home and homeownership increased by about 10%. Now that 10% of all homeowners are in default, the government wants to find a way to stop foreclosure.
It's gotta make some mortgage servicers wonder why they spent all that money on great default mitigation technology.
Rick Grant
www.rickgrant.net